How to Trade Before the News Release

Trading 'news' before it happens, or ahead of the release of economic data, is often considered less attractive than the fast-paced trading environment before or after the release. However, there are many underutilized opportunities that arise during this less volatile period that forex traders can pursue. This article will explain how to identify forex trades ahead of a news release or announcement using two specific strategies: a pre-release trend-following strategy and a pre-release calm strategy.

The pre-release trend following strategy focuses on short-term trends ahead of news releases and requires traders to display a daily chart with a 10-day simple moving average (SMA).

Traders are expected to enter the trade before the news, in the direction of the short-term trend; aims to increase volatility further in the direction of the trend, after the news is released. Moreover, this strategy works if the news results in a low volatility environment as the market is likely to continue in the direction of the existing trend.

Traders are attracted to this strategy when the data to be released is anticipated to match expectations. Data that comes out in line with expectations generally reduces the impact of releases and reduces the potential for news to disrupt existing trends.

With this strategy, traders have the opportunity to enter at the start of an accelerating trend to take advantage of as much of the advancing market as possible. The risk when using this strategy arises when the news that comes out goes against expectations which has the potential to send the market in the opposite direction with increased volatility.

The strategy can be implemented using the following steps:

 

- Establish a short-term trend: Use the 10-day moving average to assess whether the market is in a short-term uptrend (price trading above the 10-day SMA) or in a short-term downtrend (price trading below the 10-day SMA).

- Enter the trade: Enter the trade five minutes before the news release in the direction of the trend

- Manage risk: Set stops and limits while adhering to a positive risk-to-reward ratio

- Manage trades: If the volatility created after the news pushes the market rapidly towards the target, the trader may consider closing half the position at the target level and moving the stop to the target level if there is still more momentum at the target level. market.

PRE-RELATED STRATEGY

The pre-release calm strategy looks to trade within a growing range as the market is relatively calm ahead of the release. Due to the relative lull in the market, traders often ignore this opportunity and wait to trade after the news when the market is more unpredictable.

The pre-release calm strategy has a shorter time frame when compared to the pre-release trend strategy, where traders enter and exit before the news is released. Since no one knows for sure what the data will show, this strategy is suitable for more risk-averse trading – entering and exiting trades before the data has had a chance to move the market in an unfavorable way.

Using a five-minute chart, identify support and resistance levels for 48 hours prior to major news releases. Often, early in the month there is a central bank rate announcement before the release of the headline US non-farm payrolls. This strategy can be applied in the quiet period between the announcement and the US non-farm payrolls.

Volume is often light so prices will have a hard time breaking through these levels and as a result, the market can often be described as non-directional (trading within a short-term range).

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